July 4, 2014

Economic Special

An ASU Research professor will talk about why the nation has recovered jobs lost during the economic downturn but Arizona has not. ASU’s Morrison Institute has released a new report about making the Sun Corridor more competitive globally and with other states. The Global Cities Initiative is a joint project that aims to help metropolitan areas strengthen their international connections.

Guests:

Lee McPheters - Research Professor and Director, JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business at Arizona State University

Ted Simons: Good evening and welcome to this special economics edition of "Arizona Horizon." I’m Ted Simons. We begin tonight with a look at jobs. Arizona is lagging the national economy in recovering jobs lost during the great recession. To find out why, we asked Lee McPheters, the director of the JPMorgan Chase economic outlook center at ASU’s W.P. Carey School of Business.

Ted Simons: Good to see you again.

Lee McPheters: Good to see you.

Ted Simons: Let's talk about this, the U.S. employment level now back up to prerecession levels. Arizona's isn't. Why?

Lee McPheters: The national economy added another 200,000 jobs last month. So that was a real milestone. All the jobs lost in the recession have now been recovered, about 8.7 billion at the national level. You look at the Arizona numbers, we are just better than 55% recovered. So there's quite a difference between where the national economy is and where Arizona is in terms of getting all those lost jobs back.

Ted Simons: Talk about that difference. What are we seeing here?

Lee McPheters: Well, the difference really has its basis in the fact that the U.S. economy lost 6% of jobs. Arizona lost 12%. On top of that, Arizona went into the recession sooner, came out of the recession later. So went in sooner, came out later, fell further and therefore, we have a much bigger hole to dig our way out of. On top of that, they have fact that the rate of growth has simply been in the range of about 2%, where we need 4% to %5 I think to really have the kind of Arizona recovery that most analysts were expecting a couple of years ago.

Ted Simons: I think most would understand that we got hit extra hard during the recession so it might take an extra hard effort to get out of that particular hole but the rate of growth is 2% business, what's going on there?

Lee McPheters: Well, the drivers that we usually see in Arizona have been fairly sluggish. For example, you would expect construction to be one of the leaders in recovery. This is what you historically see in recession comebacks. Right now, we're seeing construction job growth about 1%. We are seeing a fairly weak housing market, commercial building is not very strong so construction is simply not in the picture right now, although growth is positive but it's just not a driver of the economy. Retail sales affected by the fact that personal incomes are not growing very fast. So that's a large sector, a big part of the Arizona economy is retail and that's not going very fast as well and you have tourism, which is affected by the national economy and since the national economy is still some distance from where you would say, you know, we were having really robust growth, tourism is not as strong as it might be.

Ted Simons: I would imagine immigration still isn't doing all that well because you've got folks that can't sell their homes somewhere else and the job opportunities, it might be a vicious cycle. You're looking for a job here, you can't find, you can't sell your home to get here. It's all a loop.

Lee McPheters: That's very much the difference between where we are with this recovery and where we have been in previous rebounds. Population growth is probably going to be under 1.5%, just to give you some context. In a strong Arizona economy you would expect to see 2% to 3% population growth. That drives housing, that drives service employment. And we're simply not seeing that wave of people moving to Arizona right now.

Ted Simons: We are seeing and keep hearing about these big scores, whether it's apple or State Farm, I think folks are expecting to see better numbers after hearing those particular stories. What's going on?

Lee McPheters: Well, all of that is to the good of course but each of those represents a few thousand jobs and those are very valuable jobs, good jobs, but we have an economy with, you know, 2.5 million people in the labor force. What we really need is something in the range of three to 4% growth. That would be 100,000 jobs a year. We haven't seen 100,000 jobs added to the Arizona economy since I would say 2006. So we're, you know, close to eight or nine years since we've really seen the kind of growth that this economy is capable of.

Ted Simons: We also hear about tax breaks and tax credits. Just, you know, in general. How much of a factor are those in what has been Arizona's recovery, regardless of how that recovery is going, are they impacting what we're seeing out there?

Lee McPheters: I think one of the key things here is that when you look at the tax structure, you want to be competitive. You don't necessarily have to have the lowest taxes. I think that you do need to be competitive, and I think Arizona's taken some steps, especially with business taxes, to get us more in line with what some of the competition is doing. On the other hand, when you look at a business and you look at their cost, the cost of equipment, the cost of supplies, the cost of labor, taxes is way down the list in terms of its proportionate contributions to the total budget of a business. But certainly lower taxes are better I think as an attraction.

Ted Simons: How about as an attraction or a perhaps a repellent, the image of a state, Arizona's image has been hammered; some would say unfairly but hammered nonetheless. Is that an impact on a slow rebound?

Lee McPheters: To some extent we do have a business model, a development model that is based on the idea that this is an attractive place for business to relocate for people to come and perhaps have a better quality of life and reinvent themselves and to the extent then that we show up on the John Stewart show, you know, behind the host and some sort of sarcastic remarks, none of that I think is very positive. On the other hand, if you had a stronger economy and we had a better job growth environment right now, I think that would probably be one of the key things we need in order to get people and businesses to relocate here.

Ted Simons: Interesting. I noticed in these latest numbers, California and Texas doing very well, kind of leading the U.S. rebound. It seems like New Mexico as far as getting those jobs back doing very poorly. Why are some of these states doing well, why is a New Mexico, for example, doing so badly?

Lee McPheters: New Mexico is a state that has a higher proportion of employment in government at the federal level, government jobs have been decreasing since I believe 2011. If you look at Arizona or most other states, you find that local government jobs have been decreasing for several years. So to the extent that you depend on government, this is not perhaps a very good time to expect your economy to be showing much growth.

Ted Simons: And last question here: As far as the U.S. economy just in general we talked about Arizona but the U.S. economy in general, the recovery is taking its time to say the least. Why is that? Why has this been such a long slog?

Lee McPheters: The driver of growth at the national level after you kind of set aside special circumstances having to do with energy production and so forth is the consumer. 70% of the economy is accounted for by the consumer and the consumers are still paying off debt. In many parts of the country, consumers are still underwater. Arizona less so than we were but still a problem. Consumers still see a high unemployment rate, and now, we're seeing this emerging problem of the presence of student debt perhaps slowing down the ability of consumers to really make purchases, you know, big ticket purchases simply because of their debt load of consumer debt tied to their college experiences.

Ted Simons: So nationally, though, at least those jobs are coming back, the population increase there you have a whole new metric but the fact is jobs are coming back to Arizona, jobs are coming back just not as quickly as we would like?

Lee McPheters: They are coming back and in a couple of sectors really we're seeing great growth in finance, we're seeing great growth in healthcare. And Arizona's ranked in the top five states in the growth of both of those sectors so those are good jobs, good wages and I think that's an important boost for the Arizona economy.

Ted Simons: Indeed, alright Lee, good to have you here, thank you so much for joining us. We appreciate it.

Lee McPheters: Good to see you.

Ted Simons: Arizona’s sun corridor is seen by many as an economic power waiting to happen. ASU’s Morrison Institute is out with a new report on how to make the sun corridor more globally and nationally competitive. Dan Hunting is the senior policy analyst for the Morrison Institute and one of the report’s co-authors.

Ted Simons: Good to have you here, thanks for joining us.

Dan Hunting: Thanks for having me.

Ted Simons: The sun corridor. Now, correct me if I'm wrong, Prescott to Nogales, or kind of something like that?

Dan Hunting: Something like that. It's very fluid boundaries. Our world we often think in political terms, I'm in Maricopa County in congressional district seven. We're looking at an economic model here and economies are not so easily defined as that.

Dan Hunting: It's actually a very natural formation, that unlike a political boundary where someone sits in a room and decides this is going to be this city council district, the economic things like this grow up on their own accord, people just transacting business.

Ted Simons: So it is organic.

Dan Hunting: Yes. Absolutely.

Ted Simons: How much of a player in the world, in the United States, right now, is the sun corridor?

Dan Hunting: The sun corridor if you look at us as an agglomeration of Phoenix to Tucson and surrounding areas, it puts us almost in a top 10 market in the United States as opposed to just Phoenix alone or maybe 12 or 13. It really bumps us up to the point where we're a bigtime player.

Ted Simons: And how do we become a bigger player?

Dan Hunting: I think part of is by leveraging the advantages we have, combining the two large economies of Phoenix and Tucson and there's a lot to be gained by looking at us as a combined economy.

Ted Simons: How do that? How do you push this regional thinking, this regional branding if you will?

Dan Hunting: Branding is definitely a lot of it. We need to start -- when we're looking to draw businesses here from out of state or from other places in the world, people aren't looking at Phoenix versus Tucson. If you're a German company looking to set up a manufacturing plant here, they don't think should I be in Phoenix or Tucson, they think should I be in L.A. or should I be in that desert place a little inland?

Ted Simons: With that in mind, how do you get the cooperation, how do you get this idea of everyone working together?

Dan Hunting: Well, I think it's just going to take a lot of creative thinking on the part of our leaders. They need to recognize this is a real thing and it's really there and to consider what's happening 100 miles up or down the road in making those decisions.

Ted Simons: I know the sun corridor's strongest assets were addressed in the report. We mentioned geography as a natural asset. Talk to us about that.

Dan Hunting: Well, one of the things that people think of when they first hear this concept of Phoenix and Tucson as a combined economy is they immediately get a nightmare scenario of a sea of red tiles stretching down I-10. That will never really happen because of our geography. That we have a large percentage of the land, about 60% of the land in the sun corridor is actually protected in one way or another. Its national forests or tribal lands, BLM lands. So what makes the sun corridor unique is we've got this large, dense urban population where these wonderful protected lands are nearby. That's a real strong point for us.

Ted Simons: Another strong point I think that you mentioned in the report at least it was certainly, an influence in the report is demographics, impact on the sun corridor.

Dan Hunting: Yes, well, there's sometimes an image that Arizona is an old state that we think of Sun City and things like that. We actually have a nice advantage that we have a strong young population. We have a lot of young eager workers that are ready to get in and do the work that we need to grow this economy. The difference, of course, is that many of them are Hispanic and we need to figure out how to educate that population and get it so they participate fully in our economy.

Ted Simons: Those are the sun corridor's greatest assets. What are the sun corridor's greatest challenges?

Dan Hunting: That's a good question. I would say our greatest challenge is to continue in sort of old-school thinking and look at provincially at what's good for Tucson, and what’s good for Mesa, what’s good for Phoenix, and not look at this as a whole entity.

Ted Simons: How do you do that? How do you get that mindset change?

Dan Hunting: That's going to be tough. It's going to take a lot of creative thinking by people that are going to need think outside the box and reach across the aisle and across the city boundaries there to look at a larger picture.

Ted Simons: Major competitors right now for the sun corridor. What are we looking at?

Dan Hunting: Well, you're looking at certainly Denver the front range area. And Atlanta, places like that. And what happens, when we move up to this larger stage is we end up competing with those larger players and that's an advantage, especially if you look at a place like Tucson.

Ted Simons: Compare us to the front range, the Denver area.

Dan Hunting: The sun corridor economy is actually larger than the front range economy. The sun corridor economy is actually larger than the entire state of Idaho, Montana, Wyoming and New Mexico combined. A lot of people think of us as this big city but not that big. The sun corridor economy and the sun corridor population is really, really large and it's the largest in the inner mountain west.

Ted Simons: With that in mind and I remember hearing about the sun corridor years ago, before the recession, if you will, and it seemed like everyone was talking Prescott to Nogales, some points close there and we're going to be a superpower in 10, 15 to 20 years, what happened?

Dan Hunting: What happened, obviously, is the economy crashed. And I think that that casting of it as the sun corridor's going to be something that happens in the future, I think that was a miscalculation. My argument has always been the sun corridor exists now whether we like it or not. It's a matter of acknowledging the reality of what's really there.

Ted Simons: With that in mind last question, what do we take from this report on the sun corridor?

Dan Hunting: What we take from this report is we get together, we act as a global player and not just think of ourselves as a local provincial player.

Ted Simons: And we can do that from this southwest area where really Mexico is the closest international partner?

Dan Hunting: Mexico is a key part of this. Our data tends to sort of stop at the Mexican border. But just as the Phoenix economy bleeds over into Mesa and Tucson, the Arizona economy bleeds down into Tucson and Mexico. So that's a key part of our economy that we need to capitalize on.

Ted Simons: Very interesting stuff, let's hope we hear more about the sun corridor and not that big old dark period where we didn't hear too much about it. Good report, interesting stuff, thanks for joining us.

Dan Hunting: Thank you very much.

Ted Simons: We end our look at economic issues with the Global Cities Initiative a joint project of the Brookings Institution and JP JPMorgan Chase. It’s an effort to help strengthen the global competitiveness of metropolitan areas. The initiative recently held a forum here in Phoenix. Among those speaking at the event, Curtis Reed, Jr., market manager for Arizona-Chase.

Curtis Reed: The global cities initiative is an initiative between JPMorgan chase and the Brookings institute to really have a goal of reaching 100 metro cities in developing a program, a strategy around increasing exports within that city so that it can vitalize the economy, create jobs, and to this point, 21 metros have signed up and we've actually reached 20 of those 21.

Ted Simons: Goals faster job growth and faster growth now I would imagine.

Curtis Reed: Absolutely. I think everyone would agree that jobs are important part of growing our economy and exports have become such a big part of that that it's critical that metro areas participate in that.

Ted Simons: And you're talking global exports here for the most part or not?

Curtis Reed: Global, mostly. Right, so as we think about global trade, you think about our partners obviously to the south of us, Mexico, to the north Canada being natural but also trade whether with Europe or Asia, really across the globe.

Ted Simons: Obviously, the initiative's there for a reason. There can be some improvements. Cities are not doing as much as you think as they could?
Curtis Reed: Well, you think about our state in Arizona, the backbone has always been construction and it's been somewhat of a boom and bust from that perspective. So really the goal is as we looked at the economy, to increase the exports and if you look at our exports in Arizona, they declined over the last seven, eight years, roughly 37%, while the broader economy has actually improved by 75%.

Ted Simons: Why is that? What happened?

Curtis Reed: Well, I mentioned the real estate, so I think that sort of hid a lot of what you would normally see and so when the downturn happened, I think it really exposed. And then there was a heavy reliance on computer and electronics industry, and when that sort of tailed off, there was a dramatic reduction in total exports.

Ted Simons: I know the state is awfully dependent on consumption, as well. How do you shape the Phoenix dependence on construction, on consumption?

Curtis Reed: The goal of the initiative is really three things and we've dedicated 15$ million the Brookings institute to really help with this, is first, you need to research and the data. So for Phoenix proper, really the goal is let's come in, let's produce the data, let's agree where our weaknesses are, where our strengths are, and then let's convene our public and private partners to really come together, share ideas, talk about common themes and then like anything else it's about the execution. Let's have an exchange to talk about those ideas and then build a strategy that we all can agree on and hold ourselves accountable to.

Ted Simons: Has the execution in other urban areas, municipalities, are they models that Phoenix can look at, are they models that Phoenix says we don't want any part of that or what's going on out there?

Curtis Reed: Well, that's the beauty of not being first. And so we have seen a number of cities, Chicago, San Diego, Dallas, that have actually entered into this and we're able to look at those models and determine what are some of the common themes or things that we can learn as a city, either things that they didn't do or can do better.

Ted Simons: So how can Phoenix basically reposition itself, as a center for the global economy, for global exports, the whole nine yards?

Curtis Reed: The first key is, we talked a lot about this at the initiative, is we really need the business community to buy into this, that there's really benefit to thinking globally and thinking about their business and expanding it globally. And the only way to do that is through education and through sort of thoughtful analysis to show if they're able to increase their business through global trade, that will then improve the bottom line, increase revenues, and then the benefits for the society as a whole is obviously job creation and so on.

Ted Simons: That's interesting to say that. I would think the business community would be jumping into this. Why would they not buy into it?

Curtis Reed: I think like anything else, what you don't know perhaps you don't know. So I think a lot of the comments we heard from some of the people at the global cities initiative is they want more education around this. They want a better understanding. It's not as simple as I want to do business in China. How do you do it? And we're fortunate at jpmorgan chase that we work with our clients constantly in advising them in terms of, you know, reaching the countries that are doing business in other countries and really the initiative here is about education, teaching sort of what are some of the things out there, the tools, the resources, that the business community can tap into, and then feel more confident that they can enter into a global competition.

Ted Simons: We talked about the ,you know, the high tech bubble, if you will, construction, consumption, the challenges facing the Phoenix region. What are the region's strengths?

Curtis Reed: Well, the strengths are there's a tremendous amount of people that continue to come to Arizona. I'm a perfect example of that. I'm 65 days in Arizona from Chicago.

Ted Simons: Welcome to summer in Arizona. Have a good time.

Curtis Reed: Thank you, but the reality is you've got a tremendous draw and that is what is needed actually to continue to be competitive is you want people coming to your state. The key is how do we then use those resources appropriately? We need to have jobs, we need to make sure that people want to stay here, that it's an area that they want to raise their children, and continue to be prosperous.

Ted Simons: Response from the event, from the initiative, what are you hearing so far?

Curtis Reed: Excellent, everyone that I've spoken to or have come up to me, the feedback has been tremendous. But I think there's a little bit of cautious optimism. I think like a number of different initiatives, it really comes down to the execution. So I think we have a great framework but the key would be what will our strategy, and how will we execute?

Ted Simons: Is the execution moving the goalposts a little bit in this area? Because we attract so many people, because we had such a construction-dependent, can you look much at an Atlanta, or a Chicago, or a San Diego, is there that much to compare to?

Curtis Reed: Yeah, I think so. I mean, clearly there's a number of positives here that I've talked about which is the number of people coming here. But I think we can look at those cities and look at how are they currently partnering with other countries or thinking about global trade or what are some things that they've done historically to attract businesses to their states and their cities? And I think we can learn a lot from those cities, and I think it's important and like the global cities initiatives, that's the benefit because we can bring sort of that background and insight to Phoenix.

Ted Simons: All right. Good stuff. Good to have you here, thanks for joining us.

Curtis Reed: Thank you.

Ted Simons: And that is it for now. I'm Ted Simons, thank you so much for joining us on this special economics edition of "Arizona Horizon." You have a great evening.

Promo: "Arizona Horizon" is made possible by contributions from the friends of eight, members of your Arizona PBS station. Thank you.